Wolfspeed (WOLF.N) released its fiscal fourth-quarter earnings report for 2023 (ending June 2023) after the U.S. stock market closed on August 17th. The key points are as follows:

1. Key Metrics: Wolfspeed.US achieved revenue of $236 million in the fourth quarter of fiscal year 2023 (23Q2), representing a YoY growth of 3.2%. The growth rate of revenue continues to decline, and high growth is no longer sustainable. The company's gross margin further declined to 27.4% this quarter, mainly due to the slowdown in market demand and increased inventory.

2. Operating Expenses: Wolfspeed's operating expenses in the fourth quarter of fiscal year 2023 reached $121 million, a YoY increase of 17.4%. Expenses have shown rigid growth in sales, general and administrative expenses, as well as research and development expenses, which have consistently accounted for over 20%.

3. Net Loss: Wolfspeed incurred a net loss (GAAP) of $113 million in the fourth quarter of fiscal year 2023, with the loss widening. The main reasons for the continued expansion of losses this quarter are the decline in gross margin and the continued increase in expenses, which further erode profits.

4. Guidance for the Next Quarter: Wolfspeed's revenue guidance for the first quarter of fiscal year 2024 is $220-240 million, while the net loss (GAAP) target is $145-169 million.

Overall, Wolfspeed's earnings report this time is not ideal. Although the revenue slightly exceeded market expectations, the profit side experienced a "breakdown." With downstream demand showing signs of fatigue and inventory levels rising, the gross margin has continued to decline.

Looking at the company's guidance for the next quarter, it also fails to inspire confidence. The company is expected to achieve revenue of $220-240 million, which is close to the previous market expectations ($236 million). However, the company's losses are expected to further expand.

Dolphin Research believes that the intensifying competition in the new energy vehicle market and the impact of "downgrading and price reduction" competition have weakened the demand for silicon carbide. Elon Musk has also stated that Tesla's next-generation platform will reduce SiC usage by 75%, further affecting the long-term prospects of the silicon carbide industry. From the financial report and guidance of Wolfspeed, the revenue side can still stabilize at over $200 million, while the losses continue to expand. With no profitability in sight, there are limited prospects for short-term performance. In addition, the "expectations" should not be overlooked.

For the stock price of Wolfspeed, a major "support point" is that the market believes the company has high growth potential, but the current revenue level does not show significant "high growth" performance. It is difficult for Wolfspeed to gain market confidence as a company whose losses continue to expand after removing the "high growth" facade.

Here is Dolphin Research's detailed analysis:

Revenue Side

In the fourth quarter of the 2023 fiscal year (23Q2), Wolfspeed achieved a revenue of $236 million, a year-on-year increase of 3.2%, slightly exceeding market expectations ($223 million).

Considering the company's financial report from the previous quarter, although the company achieved the revenue target of $212-232 million in this quarter, the revenue growth rate sharply dropped to 3.2%. The company's growth is mainly driven by the growth in the new energy field, but it is under pressure due to the competition trend of price reduction and downgrading in the current new energy vehicle industry.

The revenue side of this quarter is in line with expectations, and the market is more concerned about the company's situation in the next quarter. The company has provided a revenue guidance of $220-240 million for the next quarter, which is more likely to show a year-on-year decline. The relatively weak guidance will to some extent affect the market's expectations for the demand in the silicon carbide market.

Gross Profit Side

In the fourth quarter of the 2023 fiscal year (23Q2), Wolfspeed achieved a gross profit of $65 million, a year-on-year decline of 18.1%. While the revenue is still growing, the gross profit side is already struggling.

This is the first decline in gross profit in seven quarters, mainly due to the downward trend of gross profit margin. The gross profit margin for this quarter was only 27.4%, a year-on-year decrease of 7.1 percentage points, significantly lower than market expectations (30.1%). The decline in gross profit margin is mainly due to the weakened enthusiasm for silicon carbide in the downstream market, continued increase in company inventory, and thus a decrease in gross profit margin.

Operating Expenses Side

In the fourth quarter of the 2023 fiscal year (23Q2), Wolfspeed's operating expenses were $121 million, a year-on-year increase of 17.4%. As the company is still in the early stage of high growth in the industry, the operating expense ratio (especially in research and development) is maintained at nearly half of the level.

1) R&D Expenses: The company's expenditure on R&D in this quarter was $57 million, an increase of 18.5% YoY. As a high-tech company, R&D expenses have certain rigid characteristics. After the divestment of assets such as LED, the company's increased investment in R&D is mainly focused on SiC. Dolphin Research expects the company to continue to prioritize R&D investment, with expenses accounting for over 20%.

2) Selling, General, and Administrative Expenses: The company's expenditure on SG&A in this quarter was $64 million, an increase of 16.5% YoY. This is mainly due to increased sales expenses and further cost increases in the context of weakened downstream market enthusiasm and rising inventory.

Despite the continuous decline in revenue growth, the company's expenses are still increasing. This will greatly impact the company's profit release and further expand the losses.

IV. Net Profit

Wolfspeed recorded a net loss (GAAP) of $113 million in the fourth quarter of the 2023 fiscal year, with the loss further expanding.

In fact, Wolfspeed's profitability was only achieved in the middle of 2022, mainly due to nearly $100 million in non-recurring changes at that time. After excluding this impact, the company has been in a loss-making state. In other words, the company has been in a state of blood transfusion and has not yet achieved positive operational profitability.

Looking at Wolfspeed's quarterly report, although the company's revenue slightly exceeded market expectations, the profit was significantly lower than expected. This is mainly due to the company's declining gross profit margin, which has squeezed its profitability. In addition, the increase in operating expenses and the cost of starting new factories have further eroded the company's profits.